The commercial and HR issues involved in a TUPE transfer can be complex, and pensions is just one part of the puzzle. It is, however, an important part. In our Back to Basics guide, we covered some of the key points that you should be aware of either as an employer transferring staff, or one receiving them. Here, we set out some top tips to ensure that you are on the right track from the outset.

1. Do your homework - the earlier the better!

The pensions issues involved in a TUPE transaction can be complex, and undertaking due diligence as early as possible in this area can be hugely beneficial in the long term. It can also protect your business from inheriting significant or unexpected pension liabilities, or finding out about them too late in a deal to be able to engage constructively and commercially with the other party.

As early as you can, find out as a minimum:

  • how many of the transferring employees are in the pension scheme;
  • what type of scheme they are in - is it an occupational or a personal pension scheme; is it a defined contribution arrangement or a defined benefit one?
  • what employer and employee contributions are paid across to the scheme; and
  • what (if any) "Beckmann" liabilities there are (see below).

2. Keeping it personal

If the transferring employees participate in a personal pension scheme what type of scheme will you be providing post-transfer? Will and can you use the existing provider, or will you be using your own?

If you are planning on changing provider, ensure that you communicate this to the transferring employees, in the measures letter if possible, or if not, as soon as they have transferred across to you.

3. Engage with employees

The access employers who are receiving employees have to communicate their messages pre-transfer can sometimes be limited. However, if you are proposing any changes to an employee's pension provision post-transfer, this should be communicated in the measures letter at the very least. Employers may also separately need to consider whether they are able to make the change or it is a TUPE-protected term, as well as considering whether or not additional pensions or contractual consultation apply.

4. Do automatically check automatic enrolment provisions

The employer duty to automatically enrol certain eligible employees into a qualifying workplace pension scheme and pay contributions towards it, is something that has been phased for employers since 2012. The obligations that an employer will have on a TUPE transfer will therefore depend on whether the transferring business and/or the receiving business have reached their staging date for workplace pension reform (i.e. become subject to their employer duties in relation to automatic enrolment).

Hefty fines for non-compliance with the employer duties apply. So check early on whether or not the transferor has been complying with its duties, and what workplace pension reform obligations you as transferee will have towards the employees post-transfer.

5. Don't bet it with Beckmann

Beckmann is the term used to refer to the rights that do not fall within the TUPE pensions exemption - i.e. those occupational pension scheme rights which do transfer. Commonly, these can include rights to an unreduced pension on early retirement or redundancy.

Beckmann liabilities can be very expensive to satisfy as well as administratively difficult to fulfil if you do not have the appropriate type of pensions arrangement to pay out the liabilities. As well as asking the specific question about whether any Beckmann liabilities may transfer, employers should do sufficient due diligence to establish whether transferring employees are, or have been in a defined benefit pension scheme, and what legacy benefits they might have from that membership.

If Beckmann liabilities do exist, consider how you are going to reflect this risk either in the commercial contract or in the pricing. Also consider how you will provide the benefit post-transfer.

6. It pays to check with payroll (and your pensions team, and HR)

The cross-over between pension and employment will only increase alongside the number of employees being automatically enrolled in a pension scheme. Ensuring that payroll, HR and your pensions scheme administrators are administratively prepared for the employees who will transfer, and that any communications they send to those employee are 'joined up' is essential.

In the Combined Human Resources Solutions (CHRS) team we have strong expertise in cross-over areas of employment and pensions law, regularly advising, writing and training on the subject.